Chances are that your business has a petty cash fund. Even
if you don’t call it that, petty cash is money that is used for small, often
unexpected business purchases. This could be something like buying lunch for a
meeting or picking up new office supplies.
Even though petty cash spending is typically relatively
small, it’s still important to keep track of it and to have some relevant
guidelines in place. If you don’t, expenses can add up big time, and your
business could end up losing more money than you bargained for or than you even
realize.
Regulating Petty Cash
Spending
To begin with, you need to have some kind of rules and
regulations in place as they relate to petty cash spending. First, determine if
you want to have an actual physical petty cash account, a credit card to be
used for petty spending, or a combination of the two. Having some kind of
system in place, such as using the credit card for expenses over a certain
amount, is smart. You can come to any agreement or system that works for you; the
point is simply to have one and to make sure everybody knows and follows the
related procedures.
It’s also wise to require all people to keep record of any
petty cash money they spend and what it was spent on; have them provide
receipts when possible. Furthermore, it’s a good idea to require employees to
go through a formal cash requesting process for transactions over a certain
amount; this way, higher dollar purchases can be approved ahead of time to
avoid misappropriation of large amounts of company funds.
Basic Bookkeeping
In addition to having some kind of “spending system” in
place, you should also have a way to keep track of petty cash spending and
expenses. You can do this the old fashioned way- by recording the starting
amount, transactions, and replenishment's in a notebook or on paper- or you can
find a simple accounting software program to keep track of this data for you.
Require receipts for all expenses, and track down any
receipts or purchases that are unaccounted for to keep everyone honest. When
employees know that you are keeping careful track of petty cash spending,
they’ll be a lot less likely to use funds in an unapproved-of manner.
Use Security
Protocols
Another thing that’s smart to do is to have some security
measures in place to keep dishonest or unauthorized employees from getting to
the petty cash. If you use physical cash, keep it in a locked box or other
secure space and only give the key to authorized employees. For credit cards,
set up the card so that only certain people have permission to use it. This
will severely reduce your business’s risk of being victimized by theft.
Learn from Your
Spending
Finally, regularly go over your petty cash spending to see
where you can cut costs. This is a great way to make your business more efficient
and to save money in the long run. That, in fact, is one of the major benefits
of good petty cash accounting, along with all these other great advantages!